UNITED STATES
 










                   SECURITIES AND EXCHANGE COMMISSION
 
                         Washington, D.C. 20549
 
                                FORM 10-Q
 
 
    Quarterly Report Pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934
 
    For the quarterly period ended June 30, 1997
 
    Commission file number               0-19674
 
                               SYQUEST TECHNOLOGY, INC.
    (Exact name of registrant as specified in its charter.)
 
               DELAWARE                    94-2793941
    (State or other jurisdiction of    (I.R.S. Employer
    incorporation or organization)     Identification No.)
 
    47071 Bayside Parkway   Fremont, CA              94538
    (Address of principal executive offices)      (Zip Code)
 
    Registrant's telephone number, including area code:
    (510) 226-4000
 
         Indicate by check mark whether the registrant(1) has filed
    all reports required to be filed by Section 13 or 15(d) of the
    Securities Exchange Act of 1934 during the preceding 12 months
    (or for such shorter period that the registrant was required to
    file such reports), and (2) has been subject to such filing
    requirements for the past 90 days.
 
 
                             YES [X]        NO [ ]
 
 
    As of June 30, 1997, 48,006,170 shares of the Registrant's common stock
    $0.001 par value, were issued and outstanding.
    <PAGE>
 
 
    Part 1.  Financial Information
    Item 1.  Financial Statements
                                      SYQUEST TECHNOLOGY, INC.
                           CONSOLIDATED CONDENSED INCOME STATEMENT
                            (In thousands, except per share data)
                                         (Unaudited)
    <TABLE>
    <CAPTION>
                                                          Three months ende
                                                              June 30,
                                                      ---------------------
                                                         1997        1996
                                                      ----------  ---------










    <S>                                               <C>         <C>
 
    Net revenue                                        $31,709     $29,459
    Cost of revenue                                     30,829      46,635
    Provision for losses on purchase commitments             -       6,523
                                                      ----------  ---------
    Gross Profit (loss)                                     880    (23,699)
 
    Operating Expenses:
      Selling, general and administrative                 6,941      10,113
      Research and development                            3,712       5,932
      Restructuring costs                                    -        1,860
                                                      ----------  ---------
      Total operating expenses                           10,653      17,905
 
      (Loss) from operations                             (9,773)    (41,604
 
    Net interest expense                                   (899)       (425
    Other income                                              0         712
                                                      ----------  ---------
    (Loss) before income taxes                          (10,672)    (41,317
 
    Provision for income taxes                               -           -
                                                      ----------  ---------
    Net (loss)                                         ($10,672)   ($41,317
                                                      ==========  =========
 
 
    Net (loss) per share                                 ($0.80)     ($3.61
                                                      ==========  =========
 
 
    Common and common equivalent shares
     used in computing per share amounts                 44,054      11,450
                                                      ==========  =========
 
 
    The computation of loss per share for the quarter ended June 30, 1997,
    includes adjustments which increase the loss applicable to
    common stockholders by $0.4 million representing preferred
    stock dividends and $24.0 million representing value assigned
    to warrants issued in conjunction with the Series 3 and Series 4
    Convertible Preferred Stock, respectively.  The computation of loss per
    share for the nine months ended June 30, 1997, also includes
    adjustments of $1.3 million representing preferred stock dividends, a
    one-time adjustment of $5.3 million for the "embedded yield"
    representing the discount on the assumed potential conversion of the
    7% Cumulative Convertible Preferred Stock, Series 1, and $4.9 million
    representing value assigned to warrants issued in conjunction
    with the Convertible Preferred Stock, Series 1, and the 5% Cumulative
    Convertible Preferred Stock, Series 2.
 
    <FN>
    See notes to consolidated condensed financial statements
    </TABLE>
 










    <PAGE>
 
                                  SYQUEST TECHNOLOGY, INC.
                            CONSOLIDATED CONDENSED BALANCE SHEET
                                       (In thousands)
    <TABLE>
    <CAPTION>
                                                                       June
                                                                         19
                                                                     ------
                                                                      (Unau
    <S>                                                              <C>
    Assets
 
    Current assets:
      Cash, cash equivalents and short-term investments
      Accounts receivable, net
      Inventories, net
      Prepaid expenses and deferred income taxes
                                                                     ------
        Total current assets
 
    Net plant, property and equipment
    Other assets
                                                                     ------
                                                                          $
                                                                     ======
    Liabilities and Stockholders' (Deficit)
 
    Current liabilities:
      Bank borrowings                                                     $
      Accounts payable
      Accrued compensation and other liabilities
      Provision for losses on purchase commitments
      Current portion of long-term debt
                                                                     ------
        Total current liabilities
 
 
    Long-term debt and other long-term liabilities
 
 
 
    Stockholders' equity (deficit):
      Preferred stock
      Common stock
      Additional paid in capital                                          1
      Treasury stock                                                      (
      Retained earnings (deficit)                                        (1
                                                                     ------
        Total stockholders' equity (deficit)
                                                                     ------
                                                                          $
                                                                     ======
 
    <FN>










      Note: The consolidated condensed balance sheet at September 30, 1996
               the audited financial statements at that date.
 
    See notes to consolidated condensed financial statements
    </TABLE>
 
    <PAGE>
 
                                  SYQUEST TECHNOLOGY, INC.
                      CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                     (In thousands)
                                        (Unaudited)
    <TABLE>
    <CAPTION>
 
    <S>
 
 
 
 
 
    <S>
 
    Operating Activities:
       Net (loss)
 
       Adjustments to reconcile net (loss) to cash used in
       operating activities:
 
         Depreciation
         Deferred income taxes
         Provision for bad debts
         Capital asset adjustment
         Other
 
       Net changes in current assets and current liabilities:
 
         Accounts receivable
         Inventories
         Accounts payable
         Accrued expenses and other liabilities
         Other
 
       Net cash used in operating activities
 
 
    Investing activities:
 
       Purchase of equipment and leasehold improvements
       Other assets
 
       Net cash used in investing activities
 
    Financing activities:
 
       Proceeds from issuance of common stock










       Proceeds from issuance of preferred stock
       Net proceeds from bank borrowings
       Repayments on long term debt
 
       Net cash provided by financing activities
 
    Net increase (decrease) in cash and cash equivalents
 
    Cash and cash equivalents at beginning of the period
 
    Cash and cash equivalents at end of the period
 
 
 
    Non-Cash Financing  Activities
 
 
    (ALL AMOUNTS ARE IN THOUSANDS)
 
    During the second quarter ended March 31, 1997, three
    of the Company's vendors converted $12,871 in notes
    payable to common shares.  During the first fiscal
    quarter ended December 31, 1996, the Company
    exchanged $9,179 in accounts payable to vendor notes
    and subsequently to equity.
 
    During the second quarter ended March 31, 1997, the
    Company accrued $328 to additional paid in capital,
    for the performance of professional consulting
    services and to secure an additional bank line.
    Consideration for these services will be met by the
    issuance of common stock purchase warrants, entitling
    the buyer to purchase shares of newly issued common
    stock of the Company.
 
    During the second fiscal quarter ended March 31,
    1997, the Company satisfied outstanding vacation
    liabilities of $352 with common stock.
 
    During the second quarter ended March 31, 1997, the
    Company declared $385 of accrued preferred dividends
    paid with 164 common shares.
 
    During the third quarter ended June 30, 1997, two of
    the Company's vendors converted $2,770 in notes
    payable to common shares.
 
    During the third fiscal quarter ended June 30, 1997,
    the Company satisfied outstanding development bonus
    liabilities of $178 with common stock.
 
    During the third quarter ended June 30, 1997, the
    Company declared $394 of accrued preferred dividends
    paid with 62 common shares and 3 series 3 and series
    4 preferred shares.
 










 
    <FN>
    See notes to consolidated condensed financial statements
    </TABLE>
    <PAGE>
 
 
 
                                   SYQUEST TECHNOLOGY, INC.
                  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                       June 30, 1997
                                        (Unaudited)
 
    NOTE: 1 - BASIS OF PRESENTATION
 
    The accompanying unaudited consolidated condensed
    financial statements have been prepared in accordance
    with generally accepted accounting principles for
    interim financial information and with instructions to
    Form 10-Q and Article 10 of Regulation S-X.
    Accordingly, they do not include all of the
    information and footnotes required by generally
    accepted accounting principles for complete
    consolidated financial statements. In the opinion of
    management, all adjustments (consisting of normal
    recurring adjustments) considered necessary for fair
    presentation have been included.
 
    Operating results for the three and nine month period
    ended June 30, 1997 are not necessarily indicative of
    the results that may be expected for the year ending
    September 30, 1997.  For further information, refer to
    the consolidated financial statements and footnotes
    thereto included in the Company's annual report on
    Form 10-K, as amended, for the year ended September
    30, 1996.
 
 
    NOTE: 2 - INVENTORIES
 
    Inventories are comprised of the following:
 
                                         June 30,       September 30,
                                           1997              1996
                                         ---------       -------------
                                              (In thousands)
 
            Raw materials                  $14,213            $ 5,005
            Work in process                  5,040              4,481
            Finished goods                   5,678              1,052
 
                                         ---------       -------------
                                           $24,931            $10,538
                                         =========       =============
 
    NOTE: 3 - NET LOSS PER SHARE










 
    The computation of net loss per share for the quarter
    ended June 30, 1997, includes adjustments related to
    the computation of earnings per share applicable to
    common stockholders by $0.4 million, representing
    preferred stock dividends, and $24.0 million
    representing value assigned to warrants issued in
    conjunction with the Series 3 and Series 4 Convertible
    Preferred Stock, respectively.  Absent these financing
    adjustments, the net loss per share applicable to the
    operation of the business was $0.24. The computation
    of net loss per share for the nine months ended June
    30, 1997, also includes adjustments of $1.3 million,
    representing preferred stock dividends, a one-time
    adjustment of $5.3 million for the "embedded yield"
    representing the discount on the assumed potential
    conversion of the 7% Cumulative Convertible Preferred
    Stock, Series 1, and $4.9 million representing value
    assigned to warrants issued in conjunction with the
    Convertible Preferred Stock, Series 1 and the 5%
    Cumulative Convertible Preferred Stock, Series 2,
    respectively. Absent these financing adjustments, the
    net loss per share applicable to the operation of the
    business for the nine months ended June 30, 1997, was
    $1.80.
 
    The net loss per share for the three month and nine
    month periods ended June 30, 1997, respectively, is
    based on the weighted average number of shares of
    common stock and common stock equivalents, when
    appropriate, outstanding during the period.
 
    See Dilution of Common Stock section in MANAGEMENT'S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS
 
    NOTE: 4 - LINES OF CREDIT
 
    On June 30, 1997, the Company had a line of credit
    agreement (the "Agreement") with a financial
    institution, expiring January 31, 1998.  The Agreement
    provides for borrowings of the lesser of $30 million
    or a combination of 80 percent of the Company's
    eligible accounts receivable and 40% of the Company's
    eligible finished goods inventories. As of June 30,
    1997, approximately $16.8 million of borrowings were
    outstanding against the line.
 
    On June 30, 1997, the Company's manufacturing
    subsidiary in Penang, Malaysia, SyQuest Technology Sdn
    Bhd (M), had a banking facility (the "facility") with
    a Malaysian financial institution expiring January
    1998 and consisting of a line of credit for (RM) 17.5
    million (approximately $7.0 million) and a term loan
    for (RM) 12.5 million (approximately $5.0 million).
    The  facility is secured by the subsidiary's building,










    equipment, inventory, and eligible receivables.  As of
    June 30, 1997, approximately 5.4 million of borrowings
    were outstanding against the facility.
 
    For further information, refer to the consolidated
    financial statements and footnotes thereto included in
    the Company's annual report on  Form 10-K, as amended,
    for the year ended September 30, 1996.
 
    NOTE: 5 - CONVERTIBLE PREFERRED STOCK
 
    At June 30, 1997, the Company had 5,051 shares of 7%
    Cumulative Convertible Preferred Stock, Series 1
    (Series 1), 25,606 shares of 5% Convertible Preferred
    Stock, Series 3 (Series 3), and 257,060 shares of 5%
    Convertible Preferred Stock, Series 4 (Series 4)
    issued and outstanding.  Each of the holders of Series
    1 Preferred Stock is entitled to a 7% per share
    dividend, while the Series 3, and Series 4 Preferred
    Stock holders are entitled to a 5% per share
    dividend, respectively.  Subsequent to June 30, 1997,
    the remaining 5,051 shares of 7% Cumulative
    Convertible Preferred Stock, Series 1 have converted
    into 2,812,627 shares of Common Stock.
 
    See Dilution of Common Stock section in MANAGEMENT'S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS.
 
    NOTE: 6 - COMMON STOCK
 
    During the third fiscal quarter which ended June 30,
    1997, the Company converted $2.8 million of notes
    payable to vendors into approximately 1,164,583
    million shares of common stock.  For the nine months
    ended June 30, 1997, a total of $28.5 million of such
    notes had been converted.
 
    On August 8, 1997, the Company raised an additional
    $3.5 million in equity financing in exchange for
    1,382,716 shares of common stock.
 
    See Dilution of Common Stock section in MANAGEMENT'S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS.
 
 
    During the third fiscal quarter ended June 30, 1997,
    certain holders of the Company's then outstanding
    preferred stock issues converted preferred stock into
    common stock.  The conversions resulted in the
    issuance of 1,313,763, 1,386,500, and 1,386,500 shares
    of common stock for a total of 4,857,370 shares of
    common stock in exchange for 1,962 shares of the
    Company's Series 1 Preferred Stock, 25,000 shares of
    the Company's Series 3 Preferred Stock, and  25,000










    shares of the Company's Series 4 Preferred Stock,
    respectively.
 
    See exhibit 11.1 for the calculation of earnings per
    share and the weighted average common shares
    outstanding.
 
    NOTE: 7 - INCOME TAXES
 
    No provision for income taxes has been recorded as the
    Company has incurred net losses.  Deferred tax assets
    consisting primarily of the tax effects of net
    operating loss carryforwards are fully reserved due to
    the uncertainty of their realization.  The use of the
    net operating loss carryforwards may be limited by
    change in ownership provisions under section 382 of
    the income tax act as a result of the substantial
    number of shares issued during the second fiscal
    quarter ended March 31, 1997.
 
    See Dilution of Common Stock section in MANAGEMENT'S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS.
 
    NOTE: 8 - LITIGATION
 
    On July 29, 1997, a competitor filed lawsuit against
    the Company alleging infringement of two patents and a
    trademark.  The Company believes that it does not
    infringe any valid patent claims or trademarks of its
    competitor and intends to vigorously defend its
    position.
 
    See Part II, item 1, of this Form 10-Q for a
    description of pending legal proceedings.
 
    NOTE: 9 - RECENT ACCOUNTING PRONOUNCEMENT
 
    In February 1997, the Financial Accounting Standards
    Board issued Financial Accounting Standard (SFAS) No.
    128, "Earnings per Share".  This statement is
    effective for the Company's fiscal year ending
    September 30, 1998.  The statement redefines earnings
    per share under generally accepted accounting
    principles.  Under the new standard, primary earnings
    per share is replaced by basic earnings per share and
    fully diluted earnings per share is replaced by
    diluted earnings per share.
 
    In June 1997, the Financial Accounting Standards Board
    issued SFAS No. 130, "Comprehensive Income", and SFAS
    No. 131, "Segment Reporting".  These statements are
    effective for the Company's fiscal year ending
    September 30, 1999.  SFAS 130 defines the items to be
    included in the determination of comprehensive income,
    and SFAS 131 defines the "management approach" and the










    impact on segment reporting. Management believes the
    adoption of SFAS 128, 130 and 131 would not have a
    material impact on the net loss per share for the
    three or nine months ended June 30, 1997.
 
 
    SYQUEST TECHNOLOGY, INC.
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS
 
    Results of Operations:
 
    The Company continues to face significant risks
    associated with strong competition in the marketplace
    and acceptance of new products.  The Company faces
    additional risks associated with technology and
    product development, risks relating to new product
    introduction, changes in the Company's marketplace,
    and liquidity issues. The Company historically has not
    carried a significant backlog of customer orders. Its
    customers tend to order product for immediate shipment
    and, as such, the Company does not have visibility on
    order rates and demand for its products generally
    beyond thirty days.
 
    During the quarter ended, June 30, 1997, the Company
    experienced a significant increase in sales of the
    Company's award winning SyJet product and sustained
    sales volumes of the Company's award winning EZflyer
    products. Quarterly financial results were also
    favorably impacted by the realization of improved
    gross profit and reduced operating expenses.
    Consequently, the Company reported revenue for the
    quarter ended June 30, 1997 of $31.7 million, compared
    to $29.5 million in the same period a year ago and
    $16.8 million in the immediately preceding quarter.
    The increase represented an improvement of $14.9
    million, or 90% over the immediately preceding quarter
    ended March 31, 1997.
 
    During the quarter ended June 30, 1997, the Company
    successfully raised  additional financing through
    $33.0 million in private stock offerings and
    successfully converted $2.8 million of Vendor Notes
    Payable.
 
    See Dilution of Common Stock section in MANAGEMENT'S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS.
 
    The Company has ramped production volumes of the SyJet
    product to meet existing backlog.  However, the
    Company faces significant competitive pressures and
    there can be no assurance that the Company will be
    successful in competing against the product offerings
    of companies with greater cash and operating










    resources, or in securing the resources to
    aggressively develop and produce new products.  The
    Company will require additional cash resources in the
    future to fund working capital requirements, meet its
    debt obligations and to fund incurred losses.
    Management's plans with respect to meeting these cash
    needs include additional equity funding and further
    restructuring of notes payable to equity.  The ability
    to raise cash through further equity funding will
    require shareholder approval of an increase in the
    authorized Common Stock. There can be no assurance
    that the Company will be able to secure additional
    cash resources when needed, if at all, or on favorable
    terms or to successfully complete further debt to
    equity conversions.  An inability to overcome these
    risk factors would have a material adverse effect on
    the Company's financial performance and on its
    liquidity.
 
    Net Revenue
 
    Net revenue for the quarter ended June 30, 1997 was
    $31.7 million, compared to $29.4 million reported for
    the comparable prior year quarter.  Revenue was
    favorably affected by increased volumes on the
    Company's award winning SyJet product.
 
    For the nine months ended June 30, 1997, net revenue
    totaled $98.8 million compared to $155.6 million in
    the comparable prior year period. The decline in
    revenue over the prior year nine month period is
    principally attributable to: (i) industry wide
    shortages of critical components and other production
    shortfalls in the second fiscal quarter of fiscal 1997
    which affected the Company's ability to produce
    product commensurate with demand, (ii) the
    discontinuation of certain product lines during the
    second fiscal quarter of fiscal 1997.
 
    Absent a substantial increase in sales of the
    Company's products prior to  the end of the fourth
    fiscal quarter, the Company will continue to incur
    losses.  Factors such as slow sell through rates in
    the channels, price pressures on the Company's
    products, and competitive product introductions would
    have adverse impact on revenue.
 
    Gross Profit (Loss)
 
    The Company recorded a gross profit for the quarter
    ended June 30, 1997, of $.8 million compared to a
    gross loss of $23.7 million in the comparable prior
    year quarter. The reduction in the gross loss of $24.5
    million is principally attributable to an increase in
    the mix toward the Company's new higher margin
    products, manufacturing cost reductions, and










    efficiencies realized as a result of increased
    utilization of the Company's production facilities.
 
    For the nine months ended June 30, 1997, the gross
    loss totaled $1.3 million compared to a gross loss of
    $58.3 million for the comparable prior year period.
    The decrease in the gross loss of $57 million over the
    comparable prior year period is principally
    attributable to very high losses incurred on
    production costs for the EZ 135 system products and EZ
    135 cartridge manufacturing yields during the nine
    months ended June 30, 1996 and the establishment by
    the Company of a $18.1 million reserve for excess and
    obsolete inventory and non-cancelable purchase
    commitments during the same period.
 
    Factors such as volatility in the drive and cartridge
    markets, unexpected production delays and costs, and
    an inability to meet production schedules and sales
    demand may continue to have an adverse effect on gross
    profits. Consequently, there can be no assurances that
    the Company will achieve necessary improvements in
    gross profit in the future.
 
    Selling, General and Administrative Expenses
 
    For the quarter ended June 30, 1997, selling, general
    and administrative expenses totaled $6.9 million, or
    22 percent of net revenue compared to $10.1 million,
    or 34 percent of net revenue, for the comparable prior
    year quarter. The decrease in aggregate spending of
    $3.2 million or 32 percent over the comparable prior
    year quarter is primarily attributable to the
    Company's ongoing attempts to control costs and
    simplify its operation.  The Company is initiating a
    new sales and marketing campaign which includes
    programs aimed at stimulating sales demand.  This
    campaign will increase future Selling, General and
    Administrative expenses significantly above the
    amounts incurred during the third fiscal quarter ended
    June 30, 1997.
 
    For the nine months ended June 30, 1997, selling,
    general and administrative expenses totaled $30.9
    million compared to $38.9 million for the comparable
    prior year period.  The decrease in expenses is
    primarily driven by the Company's ongoing cost
    reduction and business simplification efforts.
 
    Research and Development Expenses
 
    Research and development expenses for the quarter
    ended June 30, 1997, were $3.7 million, or 12 percent
    of net revenue, compared to $5.9 million, or 20
    percent of net revenue, for the comparable prior year
    quarter.  The decrease in spending of $2.2 million or










    37 percent is principally the result of the Company's
    ongoing efforts to focus engineering on its primary
    core products.  The Company believes that it must
    continue to make significant investments in R&D in
    order to effectively implement its product strategy.
 
    For the nine months ended June 30, 1997, research and
    development expenses were $15.4 million compared to
    $20.4 million for the comparable prior year period.
    The decrease in expenses is primarily the result of a
    focused engineering effort on the Company's core
    products and cost reduction efforts.
 
    Interest Expense
 
    Net interest expense was $.9 million for the quarter
    ended June 30, 1997 compared to $0.4 million for the
    comparable prior year quarter. For the nine months
    ended June 30, 1997, net interest expense was $3.4
    million compared to $0.7 million for the comparable
    prior year period. The increase in interest expense is
    principally the result of interest incurred on the
    Company's bank borrowings and vendor debt obligations.
     Although the conversion of certain vendor notes to
    equity will reduce interest expense, interest on
    increased bank borrowings is expected to offset the
    decrease in vendor note interest expense.
 
    Net Loss
 
    The loss for the quarter ended June 30, 1997 was $10.7
    million compared to $41.3 million for the comparable
    prior year quarter.  For the nine months ended June
    30, 1997, the net loss was $51.2 million compared to
    $126.2 million for the comparable prior year period.
    The reduction in the loss from the prior periods is
    primarily attributable to the matters discussed in the
    preceding paragraphs.
 
    Liquidity and Capital Resources:
 
    The Company is in a turnaround situation which
    necessitates certain actions on behalf of the Company
    which affect the business environment in which the
    Company operates.  Through much of fiscal 1996 the
    Company was unable to obtain regular business terms
    with its suppliers as a result of continued losses and
    liquidity issues.  Consequently, the Company was often
    in a position of conducting business with its
    suppliers on a C.O.D. basis.  During the current
    fiscal year, the Company has experienced a return to
    regular business terms with key suppliers, although
    some vendors still require C. O. D. terms or security
    deposits.  The Company has aggressively pursued a
    program to convert accounts payable and vendor notes
    into common stock.  During the quarter ended June 30,










    1997, $2.8 million of vendor notes were converted to
    1,164,583 shares of common stock. The Company intends
    to continue its efforts to convert additional vendor
    notes to equity. During the quarter ended June 30,
    1997, the Company raised $33.0 million of additional
    capital to fund operations.
    There can be no assurance that the Company will be
    successful in its attempts to convert the remaining
    notes or in raising additional capital as needed.  The
    Company's inability to convert those notes or to raise
    additional capital would have an adverse effect on the
    Company's liquidity.
 
    At June 30, 1997, the Company had cash and short-term
    investments of $7.5 million, comparable to the $3.7
    million at September 30, 1996.  Borrowings under the
    Company's credit facilities amounted to $22.2 million
    at June 30, 1997 compared to $19.3 million at
    September 30, 1996.  The Company improved its net
    worth from a deficit position of $30.4 million at
    September 30, 1996 to an equity position of $13.5
    million at June 30, 1997. Working capital also
    increased from a negative position of $37.4 million at
    September 30, 1996 to  $2.2 million at June 30, 1997.
     The improvements in net worth and working capital
    over the comparable prior year quarter are primarily
    attributable to a significant increase in equity
    investments coupled with a reduction in operating
    losses.
 
    The Company has financed its working capital needs
    through a combination of existing cash resources,
    asset-based borrowings, and a series of capital financing
    transactions.
 
    The Company's liquidity may be impacted in the future by
    factors such as higher interest rates, inability to
    borrow without collateral and higher financing costs with
    regard to capital, and limitations to further equity
    funding without shareholder approval.
 
    Accounts receivable totaled $24.1 million at June 30,
    1997 compared to $30.3 million at September 30, 1996. The
    decrease of $6.2 million is primarily attributable to
    significantly improved collection efforts and aggressive
    management of the accounts receivable agings.
 
    Inventory, net of reserves, was $24.9 million at June 30,
    1997, an increase of $14.4 million, compared to the $10.5
    million at September 30, 1996. The increase in
    inventories is primarily attributable to production of
    the SyJet and EZflyer products to levels commensurate
    with expected demand.  Inventory turnover has remained
    consistent at approximately 5 turns per year.
 
    On January 17, 1997, the Company renegotiated its










    domestic line of credit with a financial institution,
    continuing the existing terms and extending the line
    through January 31, 1998.  The new line provides for a
    limit on borrowings of the lesser of $30 million or a
    combination of 80 percent of the Company's eligible
    accounts receivable and 40% of the Company's eligible
    finished goods inventory. As of June 30, 1997,
    approximately $16.8 million of borrowings were
    outstanding against the line.
 
    On June 30, 1997, the Company's manufacturing
    subsidiary in Penang, Malaysia, SyQuest Technology Sdn
    Bhd (M), had a banking facility (the "facility") with
    a Malaysian financial institution expiring January
    1998 and consisting of a line of credit for (RM) 17.5
    million (approximately $7.0 million) and a term loan
    for (RM) 12.5 million (approximately $5.0 million).
    The  facility is secured by the subsidiary's building,
    equipment, inventory, and eligible receivables.  As of
    June 30, 1997, approximately 5.4 million of borrowings
    were outstanding against the facility.
 
    For further information on bank borrowings, refer to
    the consolidated financial statements and footnotes
    thereto included in the Company's annual report on
    Form 10-K, as amended, for the year ended September
    30, 1996.
 
    The Company raised significant financing during the
    quarter ended June 30, 1997.  See Part II, item 2 of this
    Form 10-Q. The Company will require additional equity
    funding which, if successful, will cause further dilution
    of the common stock. The ability to raise cash through
    further equity funding will require shareholder approval
    of an increase in the Company's authorized common stock.
     See Dilution of Common Stock section in MANAGEMENT'S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS.
 
    The Company has deferred negotiation of an equity
    investment by the Legend group as further documented in
    the Company's annual report on  Form 10-K, as amended,
    for the year ended September 30, 1996.
 
    For the nine months ended June 30, 1997, the Company used
    $53.4 million in cash for operating activities and $4.0
    million in capital expenditures.
 
    The Company believes that, based on its ability to raise
    additional capital and obtaining shareholder approval to
    do so, the sources of financing available to the Company
    will be sufficient to fund the Company's operations into
    the near future.  There can be no assurance, however,
    that additional financing will be available when needed,
    if at all, or on favorable terms.
 










    Notice Concerning Forward Looking Statements and
    Factors That May Affect Future Results, Financial
    Condition and Liquidity:
 
    Some of the statements made in this Form 10-Q are
    forward-looking in nature, including but not limited
    to the Company's product introduction and financing
    plans and other statements that are not historical
    facts.  Forward-looking statements in this Form 10-Q
    include, without limitation,  language in the form of
    one or more of the following words: "intend",
    "believe", "will", "may", "anticipate", "plan", and
    "expect."  The occurrence of the events described, and
    the achievement of the intended results, are subject
    to the future occurrence of many events, some or all
    of which are not predictable or within the Company's
    control; therefore, actual results may differ
    materially from those anticipated in any forward-
    looking statements.  Many risks and uncertainties
    which could affect the possible results described in
    forward-looking statements are inherent in the
    Company's industry; others are more specific to the
    Company's business.  Risks related to the Company's
    business are described in the Company's Form 10-K, as
    amended, including risks associated with technology
    and product development, risks relating to new product
    introduction and acceptance of new products, changes
    in the Company's marketplace, preferred stock
    issuances and dilution, intellectual property matters,
    regulatory and manufacturing issues, liquidity issues,
    and risks associated with competition from other
    companies, as well as the following:
 
    ONGOING RISK ISSUES
 
    Market acceptability of the Company's product and
    access to capital continue to be paramount in ensuring
    a successful turnaround strategy.  The Company's
    products are subject to increasing competition from
    several other removable-media data storage devices.
    In order to secure adequate market share, the Company
    must ensure that the functionality and quality of the
    product is effectively communicated to the
    marketplace.   As a result, the Company needs
    sufficient capital to implement a marketing strategy
    that will adequately address the appropriate markets.
     The Company is also dependent on the successful
    production and sale of the SyJet product line.
    Additionally, the decline in volumes and pricing on
    mature products will continue to have a negative
    impact on the Company's revenue.  The Company
    historically has not carried a significant backlog of
    customer orders. Its customers tend to order product
    for immediate shipment and, as such, the Company does
    not have visibility on order rates and demand for its
    products generally beyond thirty days.  Critical to










    each of these factors is the Company's ability to
    attract additional investment capital. The ability to
    raise cash through further equity funding will require
    shareholder approval to increase the number of
    authorized common shares. There can be no assurances
    that the Company will successfully achieve these
    objectives.
 
    DILUTION OF COMMON STOCK
 
    At June 30, 1997, the Company had 5,051 shares of
    Series 1 Preferred Stock, 25,606 shares of Series 3
    Preferred Stock, and 257,060 shares of Series 4
    Preferred Stock issued and outstanding.  The Series 1
    Preferred Stock has conversion limitations which limit
    the number of shares that may be converted in any
    month.   Additionally, several of the Company's
    financings have included significant warrant coverage
    which, when exercised, will result in significant
    proceeds to the Company.  Assuming the conversion of
    all preferred stock, exercise of existing warrants
    and, fulfillment of other existing commitments, a
    substantial portion of the Company's 120 million
    authorized common stock has been committed.
    Consequently, the Company's ability to raise cash
    through further equity funding will require
    shareholder approval of an increase in the number of
    authorized common shares.  Should such funding occur,
    further dilution of the common stock will result.
 
    FUTURE PROFITABILITY
 
    The Company continues to execute its turnaround plan
    which includes adjusting operations to reduce losses
    and simplification of the business to improve
    efficiency.  The Company believes that it will
    ultimately be successful in its turnaround attempts,
    and that the Company will return to profitability in
    the future.  However,  there can be no assurances that
    the Company will be successful or that it will have,
    or be capable of obtaining,  sufficient capital to
    withstand prolonged operating losses.
 
    SHORTAGES OF CRITICAL COMPONENTS; ABSENCE OF SUPPLY
    CONTRACTS; SUPPLIER WORKOUTS
 
    Many components incorporated in, or used in the
    manufacture of, the Company's products are currently only
    available from sole source suppliers.  During the 1996
    fiscal year, the Company experienced disruption in its
    supply of certain components for a number of reasons
    including worldwide shortages of key components as well
    as the shortage of cash to pay suppliers.  The Company
    may continue to experience difficulty in the future in
    obtaining a sufficient supply of many key components due
    to the shortage of cash to pay suppliers and other










    reasons.  A disruption in the supply of key components
    would have a material adverse affect on the Company's
    ability to generate sales and the ability to successfully
    produce the SyJet products.
 
    QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
 
    The Company has experienced and in the future may
    continue to experience significant fluctuations in its
    quarterly operating results.  Factors such as price
    reductions, the introduction and market acceptance of new
    products, product returns, the availability of critical
    components and the lower gross profits associated with
    the Company's products could contribute to this quarterly
    fluctuation.  Moreover, the Company's expense levels are
    based in part on expectations of future sales levels, and
    a shortfall in expected sales could therefore result in a
    disproportionate decrease in the Company's financial
    performance.  As a result of these and other factors,
    including possible further dilution, it is likely that
    the Company's operations may be affected.
 
 
    PART  II
    OTHER INFORMATION
 
    Item 1. Legal Proceedings
 
    On July 23, 1997, Iomega Corporation ("Iomega") filed
    civil action No. 97-466 in the United States District
    Court in and for the District of Delaware against
    SyQuest Technology Inc.
 
    The lawsuit alleges that SyQuest has infringed
    Iomega's Design Patent No. D378,518 and U.S. Patent
    No. 5,644,444 by making and selling computer disk
    cartridges and drives which embody alleged inventions
    of those patents, and that SyQuest has willfully
    infringed Iomega's alleged trademark "JET".  The
    complaint requests money damages and a preliminary
    injunction enjoining SyQuest from further
    infringement.
 
    The Company believes that it does not infringe any
    valid patents or trademarks of Iomega and intends to
    vigorously defend against this action. However, if
    Iomega were to prevail in its claims against the
    Company, it would have a material adverse effect on
    the Company.  Refer to the Company's 8-K filed August
    11, 1997 for further information.
 
    The Company has filed suit against Castlewood Systems,
    Inc. and certain of its employees and consultants for
    misappropriation of trade secrets, unfair competition and
    other specified claims.  Castlewood Systems, Inc. has
    filed a cross-complaint against the company alleging










    interference with prospective economic advantage, unfair
    competition and trade libel.  The Company believes that
    these cross-claims are without merit and intends to
    vigorously defend against them.
 
    In 1996, the Company was named as a defendant in four
    putative
    class action lawsuits.  Two of the actions were brought
    in the United States District Court for the Northern
    District of California.  The two other actions were filed
    in the Superior Court of the State of California for the
    County of Alameda and have been consolidated into one
    action.  The Company intends to defend these three cases
    vigorously.  Refer to the Company's annual report on Form
    10-K, as amended, for the year ended September 30, 1996,
    for further information.
 
    The Company has certain insurance coverage with respect
    to the above claims. However, the amount of any ultimate
    claims based on these actions and related insurance
    coverage is not presently determinable.
 
    In May of 1996, the Company was served with a
    shareholder's derivative action filed in Alameda County,
    California, Superior
    Court entitled John Nitti, et al. v. Syed Iftikar, et al.
     The Company is a nominal defendant in the action and
    intends to defend this case vigorously.  Refer to the
    Company's annual report on Form 10-K, as amended, for the
    year ended September 30, 1996, for further information.
 
    The Company has filed suit against Nomai, S.A. (Nomai)
    and Maxell in France for copyright and patent
    infringement, and though it did not obtain the temporary
    injunction sought against Nomai prohibiting the sale and
    distribution of Nomai's 200 megabyte cartridges, the
    underlying suit continues.  The Company has also
    initiated an arbitration proceeding against Nomai seeking
    payment of outstanding royalties of approximately $1
    million.  The arbitration process began in May 1995, in
    San Jose, California.
 
    On January 27, 1997, the Company filed a suit against
    Nomai, S.A., Electronique d2 and La Cie Ltd.  In Federal
    district court in San Francisco for patent, trademark and
    copyright infringement, unfair competition and breach of
    contract.  The suit alleges that Nomai and others have
    illegally used the Company's proprietary technology in
    certain of Nomai's competing products.  The suit seeks to
    block further sales of such products along with damages
    deriving from harm done to the Company by this conduct.
    Nomai has filed a counter-claim for alleged breach of
    contract and unfair competition.  During the quarter
    ended June 30, 1997, the suit against defendants
    Electronique d2 and La Cie Ltd was settled.
 










    One company has notified the Company that it believes the
    Company's products infringe on six U.S. patents. It is
    the Company's belief that the claims are without merit or
    that the infringement claims relate to component parts
    purchased from vendors. The Company also believes that in
    the event this company prevailed on its claims, the
    Company would be  indemnified by its vendors for any
    liability arising from the alleged infringements and that
    this matter will not have a material adverse effect upon
    its financial condition or results of operations.
 
    Another company recently notified the Company that it
    believes a number of the Company's removable cartridge
    hard drives products infringe several of its patents
    relating to the use of spin motors in disc drives. The
    Company believes that its removable cartridge hard drive
    products do not infringe the claims of these patents and
    that some or all of the asserted patents are invalid.
 
    The Company, in the normal course of business, receives
    and makes inquiries relating to other intellectual
    property matters including alleged patent infringement.
    The Company may negotiate licenses or other settlements
    when it considers such action appropriate.
 
    From time to time, the Company is involved in litigation
    that it considers to be in the normal course of its
    business. Other than set forth above, the Company is not
    engaged in any legal proceedings as of the date hereof
    which the Company expects individually or in the
    aggregate to have a material adverse effect on the
    Company's financial condition or results of operations.
 
    Item 2. Changes in Securities; Potential Dilution and Adverse Impact on
    Additional Financing
 
    As of June 30, 1997, the holders of Series 1, Series 3,
    and Series 4 Preferred Stock exercised their rights to
    convert 2,704, 24,394, and 22,940 shares of Preferred
    Stock into 1,313,763, 1,386,500, and 1,386,500 shares of
    Common Stock, respectively. The holders of the Company's
    Convertible Preferred Stock, Series 1 and 5% Cumulative
    Convertible Preferred Stock, Series 2 fully exercised
    their rights to convert their common stock into a total
    of 15,730,428 shares of the Company's Common Stock during
    the second fiscal quarter.  The holders of those
    preferred shares also received a total of 4,172,484
    warrants for the purchase of additional shares of the
    Company's Common Stock, and the holders of the 5%
    Cumulative Convertible Preferred Stock, Series 2 received
    an additional 54,827 shares of Common Stock representing
    their final 5% dividend as holder of such preferred
    stock.  The Series 3 and Series 4 holders received
    warrants to purchase an additional 5 million and 28
    million shares of common stock, respectively.
 










    The exact number of shares issuable upon conversion of
    the preferred stock cannot be determined with certainty
    as the conversion price fluctuates with the market price
    of the Company's Common Stock.  Generally, such issuance
    of Common Stock will vary inversely with the market price
    of the Common Stock at the time of such conversion, and
    there is no cap on the number of shares of Common Stock
    that may be issuable.  Further, the Company anticipates
    the issuance of additional shares of Common Stock in lieu
    of cash dividends to the holders of such preferred stock.
 
    During the quarter ending June 30, 1997, entities holding
    claims totaling $2.8 million against the Company
    exchanged those claims for a total of 1,164,583 shares of
    the Company's Common Stock.  These transactions are set
    forth in greater detail in the Report on Form 8-K filed
    in July 1997.
 
    During the quarter ended June 30, 1997, the Company
    entered into various financing transactions whereby an
    aggregate of $5.0 million was raised through the sales of
    the Company's 5% Cumulative Convertible Preferred Stock,
    Series 3 (the "Series 3 Shares") and an additional $28.0
    million through the sales of 5% Cumulative Convertible
    Preferred Stock, Series 4 (the "Series 4 Shares").  The
    holders of these preferred shares will be able to convert
    them into shares of the Company's Common Stock pursuant
    to a predetermined formula based on the market price of
    the Common Stock at the time of conversion.  As the
    conversion price fluctuates with the market price of the
    Company's Common Stock, the exact number of shares
    issuable upon conversion of the Series 3 Shares and
    Series 4 Shares cannot be determined with certainty.
    Generally, such issuance of Common Stock will vary
    inversely with the market price of the Common Stock at
    the time of such conversion, and there is no cap on the
    number of shares of Common Stock that may be issuable.
    Further, the Company anticipates the issuance of
    additional Series 3 Shares or Series 4 Shares to the
    respective holders of such preferred stock in lieu of
    cash dividends.  The holders of the Series 3 Shares and
    Series 4 Shares also received warrants to purchase a
    number of shares of the Company's Common Stock equal to
    the amount invested.  The terms of the sale of the Series
    3 and Series 4 shares are more fully set forth in the
    Company's Report on Form 8-K filed in May 1997.
 
    During the quarter ended June 30, 1997, the Company
    issued certain consulting firms warrants to purchase a
    number of shares of the Company's Common Stock. The terms
    of the warrants are substantially the same as the Series
    4 warrants which are more fully disclosed in the
    Company's Report on Form 8-K filed in May 1997.
 
    Item 4. Submission of Matters to a vote of Security
    Holders










 
    On May 6, 1997, the Company held its annual
    shareholder meeting at the Corporate
    Headquarters in Fremont, California.  The
    following matters were submitted and approved
    by the shareholders:
 
    (I)     the nomination and election of Edward
    Marinaro, Edwin Harper, Joseph Baia, and Richard
    Kramlich as directors of the Company,
 
    (ii)    the approval of an amendment to the
    Certificate of Incorporation to increase the
    authorized number of shares of the Company's Common
    Stock by 60 million and to decrease the stated par
    value   of the Common Stock to 0.0001, by a tally of
    27.7 million votes in   favor, 112 thousand votes
    opposed, and 81 thousand abstaining votes,
 
    (iii)   the appointment of Price Waterhouse, LLP as
    the Company's Independent Accountants.
 
    Item 6. Exhibits and Reports on Form 8-K
 
            a.      Exhibit 11.1 Computation of Earnings per Share
 
            b.      Financial data Schedule
 
            c.      Reports on Form 8-K
 
    A current report on Form 8-K, dated June 11,
    1997, was filed by the Company reporting
    under item 5 and 7 the registration of
    Registrant's Common Stock on Form S-3, and
    related exhibits.
 
    A current report on Form 8-K, dated June 2,
    1997, was filed by the Company reporting
    under item 5 the exchange of debt for equity
    pursuant to Regulation D.
 
    A current report on Form 8-K, dated April 4,
    1997, was filed by the Company reporting
    under item 5, 7, and 9, the exchange of debt
    for equity pursuant to Regulation D, the
    presentation of pro forma financial
    statements, information and related exhibits,
    and the sale of equity securities pursuant to
    Regulation S, respectfully.
 
 
    SIGNATURES
 
 
    Pursuant to the requirements of the Securities Exchange Act of 1934,
    the Registrant has duly caused this report to be signed on its behalf










    by the undersigned thereunto duly authorized.
 
 
 
    SYQUEST TECHNOLOGY, INC.
    (Registrant)
 
 
 
    Date: August 14, 1997      By: /s/ Bob L. Corey
 
                            Bob L. Corey
                            Executive Vice President,
                            Finance & Chief Financial Officer
 
    EXHIBIT INDEX
 
 
    Exhibit 11.1  -  Computation of Earnings per share
 
    Exhibit 27.1  -  Financial data schedule